Morocco - Pilot Project For Small-scale Mining Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3393-MOR STAFF APPRAISAL REPORT MOROCCO PILOT PROJECT FOR SMALL-SCALE MINING February 26, 1982 Industrial Projects Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Current Unit = Dirhams (DH) US$1.00 = DH 5.2 DH 1.00 = US$0.19 WEIGHTS AND MEASURES 1 meter (m) = 3.281 feet (ft) 1 kilometer (km) = 0.622 miles 1 kilogram (kg) = 2.205 pounds 1 metric ton (t) = 1.1 short ton (st) 1 metric ton per year (tpy) = 1.1 short ton per year (stpy) PRINCIPAL ABBREVIATIONS AND ACRONYMS BNDE = Banque Nationale pour le Developpement Economique BMCE Banque Marocaine du Commerce Exterieur BRPM = Bureau de Recherches et de Participations Minieres CADETAF = Centrale d-Achat et de Developpement de la Region Miniere du Tafilalet et de Figuig CIF = Cost, Insurance and Freight CPEs Centrally Planned Economies DOM Directorate of Mines ENIM Ecole Nationale de l'Industrie Minerale EPP = European Producer Price GDP Gross Domestic Product LDC Less Developed Countries LME = London Metal Exchange MEM Ministry of Energy and Mines MOF = Ministry of Finance OCP Office Cherifien des Phosphates ONT = Office National des Transports PZ = Plomb de Zellidja USBM United States Bureau of Mines CADETAF FISCAL YEAR January 1 - December 31  FOR OFFICIAL U&Z ONLY MOROCCO STAFF APPRAISAL REPORT PILOT PROJECT FOR SMALL-SCALE MINING TABLE OF CONTENTS Page No. I. INTRODUCTION ................................................. 1 II. THE MINING SECTOR ............................................ 2 A. Structure of the Moroccan Mining Sector ................. 2 B. The Artisanal Mining Sector ............................. 3 III. CADETAF ..................................... 5 A. Background .............................................. 5 B. Objectives .............................................. 5 C. Organization, Staffing and Management ................... 6 D. Past Operations, Performance and Operating Procedures ... 8 1. Ore Purchase ....................................... 8 2. Services and Technical Assistance .................. 10 3. Financial Situation ................................ 11 IV. MARKET ASPECTS FOR LEAD AND ZINC ............................. 13 A. Market Conditions and Outlook for Lead ....... .. ......... 13 1. Lead Production and Reserves ....................... 13 2. Lead Consumption ................................... 14 3. Lead Supply/Demand Balance and Price Prospects ..... 14 B. Market Conditions and Outlook for Zinc ....... .. ......... 16 1. Zinc Production and Reserves ....................... 16 2. Zinc Consumption ................................... 17 3. Zinc Supply/Demand Balance and Price Prospects ..... 18 C. Market and Marketing of CADETAF's Concentrates .... ...... 20 V. THE PROJECT .................................................. 21 A. Project Objectives and Scope ............................ 21 B. Project Description ..................................... 22 This report was prepared by Messrs. J.O. Franz, J.E. Strongman, C.N. Ahmad and Ms. J. Wright of the Industrial Projects Department. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - TABLE OF CONTENTS (Cont'd) Page No.' C. Detailed Features ....................................... 23 1. Mobile Lead Concentrator ........................... 23 2. Mobile Zinc Concentrator ........................... 25 3. Crushing and Grinding Unit ......................... 26 4. Equipment and Works for Pilot Mines .... ............ 26 5. Training Mine ...................................... 28 6. Geological Studies and Works ....................... 28 7. Ore Collection Centers ............................. 29 8. Equipment for CADETAF's Technical Services .... ..... 30 9. Socio-Economic Study of Artisanal Mining Sector .... 30 10. Technical Assistance for CADETAF ................... 31 11. Ecology ............................................ 31 12. Mine Safety and Medical Care ....................... 31 D. Project Implementation .............. .. .................. 32 1. Project Management and Organization .... ............ 32 2. Implementation Schedule ............................ 33 VI. CAPITAL COST, FINANCING PLAN, EQUIPMENT CREDIT FACILITY AND PROCUREMENT .................................................. 34 A. Capital Cost ....................-.-.-.-.-. 34 B. Financing Plan ................... 35 C. Equipment Credit Facility ............................... 36 D. Procurement ............................................. 37 E. Allocation and Disbursement of the Bank Loan .... ........ 38 VII. FINANCIAL ANALYSIS .......................................... 38 A. Introduction ............................................ 38 B. Incremental Production of Lead and Zinc Concentrate ..... 38 C. Financial Projections for Pilot Mines ................... 40 D. Incremental Income for Miners from Sale of Low-Grade Ore .... 41 E. Future Financial Position of CADETAF ......... ........... 41 1. Sales Revenues ..................................... 41 2. Ore Purchases ...................................... 42 3. Operating Cost ..................................... 42 4. Cost Recovery ...................................... 43 5. Financial Projections for CADETAF .................. 45 F. Financial Covenants ..................................... 46 G. Financial Projections for Equipment Credit Facility ..... 47 H. Reporting Requirements .................................. 48 I. Incremental Financial Rate of Return .................... 48 J. Major Risks ............................................. 49  - iii - TABLE OF CONTENTS (Cont'd) Page No. VIII, ECONOMIC ANALYSIS .. .......................................... 50 A. Project Benefits ........................................ 50 1. Foreign Exchange Benefits ....... ................... 50 2. Other Benefits . ..................................... 51 B. Project Beneficiaries and Project Area ..... ............. 51 C. Incremental Economic Rate of Return ..... ................ 52 IX. AGREEMENTS REACHED AND RECOMMENDATIONS . .53 ANNEXES 1 Glossary of Mining Terms 3-1 CADETAF Income Statements 1974-81 3-2 CADETAF Funds Flow Statements 1975-81 3-3 CADETAF Balance Sheets 1974-81 5 List of Equipment and Works 6-i Capital Cost Breakdown 6-2 CADETAF Incremental Working Capital Requirements 6-3 Revolving Equipment Fund for Small-Scale Mines 6-4 List of Equipment to be Financed Out of the Proceeds of the Loan 6-5 Estimated Disbursement Schedule for the Bank Loan 7-1 Projected Production of Lead and Zinc Concentrate 7-2 Incremental Production and Income of Pilot Mines 7-3 Projected Cash Flow of Pilot Mines 7-4 Projected Ore Purchase Prices 7-5 CADETAF Incremental Staffing and Operating Cost 7-6 CADETAF Projected Incremental Operating Cost 7-7 Cost Recovery 7-8 CADETAF Projected Income Statements 7-9 CADETAF Projected Funds Flow Statement 7-10 CADETAF Projected Balance Sheet 7-11 Assumptions in Financial Forecasts of CADETAF 7-12 Equipment Credit Facility--Projected Sources and Applications of Funds Statement 7-13 Cost/Benefit Streams for Financial Rate of Return 8-1 Estimated Foreign Exchange Generated by the Project 8-2 Cost/Benefit Streams for Economic Rate of Return MAP IBRD 15548 Kingdom of Morocco, Pilot Project for Small-Scale Mining  - iv - TABLE OF CONTENTS (Cont-d) SELECTED DOCUMENTS AND DATA AVAILABLE IN THE PROJECT FILE Referred to under Para. A. Consultant's Report, Small Scale Lead and Zinc Artisanal Mining in 5.03 South-Eastern Morocco, Report on Visit to the CADETAF Project, November 29-December 13, 1981, by A. Khilkoff-Choubersky. B. Start-up Experience of Base Metals Operations by Dr. J.C. Argarwal 7.03 and Dr. F.E. Katrak, Charles River Associates, Inc. and Dr. R.H. Lloyd, IBRD, 1981 C. Consultant's Report, CADETAF Small Scale Lead/Zinc Mining Project, 7.13 by Florent Baril, October 1980.  I. INTRODUCTION 1.01 The Government of Morocco has requested a US$9.5 million Bank loan to finance a pilot project (the Project) for small scale mining in the Tafilalet and Figuig region in southeastern Morocco. The region lacks basic infrastructure and, outside the oases, has little agricultural or other economic potential, except for mining. There are an estimated 15,000 artisanal miners who derive their income principally from mining lead and zinc ore in about 1,600 mines with small and irregular--but very rich--ore deposits. A proportion of the mine workers live nomadic lives, working in a succession of mines and living in tents close to active mining sites. Productivity is low due to the rudimentary mining methods used and the average per capita income of miners in 1981 was US$250, more than 50% below the agricultural minimum wage. 1.02 The proposed Bank loan of US$9.5 million will finance two mobile concentrators, a mobile crushing and grinding unit, basic mining equipment packages for some 40 selected mines (including compressors, jackhammers, hoists, pumps, mine cars and rails), as well as geological studies, training and equipment for workshops and laboratories. The Bank loan would be made to the Government of Morocco and would be on-lent to the Centrale d'Achat et de Developpement de la Region Miniere du Tafilalet et de Figuig (CADETAF). CADETAF is a mining extension service entity responsible for providing various forms of assistance to the miners. It also has a purchasing and marketing monopoly for the artisanal production. The total project cost is estimated at US$15.2 million. Incremental project production of lead concentrate is estimated at about 14,500 tpy, and of zinc concentrate at about 7,500 tpy, about one and-a-half times the present production rate. 1.03 The Project has been designed on a pilot scale that will test the miners reactions to its various components and operating procedures to determine the most appropriate form of assistance. The miners make independent decisions regarding their mine production according to ore prices and inter- mittent agricultural as well as other non-mining activities. The success of the Project depends to a large degree on whether or not sufficient ore will be produced to maintain a consistently high level of utilization of the concentra- tors and mechanized mining equipment. Being only a first step, the Project should, if successful, lead to a subsequent, larger development of the mining sector and associated activities in the region. 1.04 The Project was appraised in December 1980 by a mission consisting of Messrs. J. Franz (Chief) and N. Ahmad of the Industrial Projects Department, and A. Khilkoff-Choubersky (Consultant). A short follow-up mission took place in end-March 1981. A glossary of mining terms is given in Annex 1.  - I- -a II. THE MINING SECTOR A. Structure of the Moroccan Mining Sector 2.01 Morocco has a long mining tradition, possessing the world's largest reserves of phosphate rock, as well as modest reserves of iron, lead, zinc, manganese, cobalt and copper. While the mining sector-s contribution to GDP has decreased from a peak of 13.0% in 1974 to 4.8% in 1979, mostly due to a decline in phosphate prices, its importance for the balance of payments is very significant. Mining exports in 1979 accounted for about 35% of foreign exchange earnings. Phosphate rock is by far the most important mineral, accounting for about 90% of export tonnage and 74% of the sector-s foreign exchange earnings in 1979. Mining employment consists of about 40,000 workers in industrial mines, plus some 15,000 artisanal miners, representing a little over 1% of the country's total labor force. Morocco--Mineral Sector Contribution (% of) 1974 1975 1976 1977 1978 1979 Gross Domestic Product (GDP) 12.8 9.1 5.5 5.3 4.7 4.8 Foreign Exchange Earnings 61.0 59.5 45.0 43.5 39.5 35.0 of which Phosphates 90.3 93.0 88.2 83.8 83.0 73.9 Source: Morocco--Basic Economic Report, 1980, IBRD 3289-MOR. 2.02 Lead is the most important of the non-phosphate minerals, accounting for 32% of the non-phosphate export value, followed by manganese (12%), cobalt (9%), iron ore (8%), and zinc (4%). The non-phosphate production is mostly exported in concentrate form, the major exception being lead. Since 1975, the domestic lead smelter Plomb de Zellidja (PZ) in Oued el Heimr (Map) has processed an increasing portion of Morocco's lead ore production (1978:28%). This share will increase further as PZ-s smelting capacity was expanded in 1980 from 35,000 tpy of metal to 50,000 tpy. Morocco--Mineral Production and Exports Annual Average 1974-78 Production Exports Export Value ('000 tpy) (%) ('000 tpy) (%) (US$ million) (%) Phosphate Rock 17,264 96.1 15,882 96.2 692.0 90.9 Iron Ore 378 2.1 329 2.0 7.5 1.0 Lead Concentrate 134 0.7 107 0.6 31.2 4.1 Manganese (Chemical Grade) 130 0.7 128 0.8 11.8 1.5 Zinc Concentrate 25 0.2 26 0.2 3.6 0.5 Cobalt Concentrate 10 0.1 10 0.1 8.6 1.1 Copper Concentrate 15 0.1 16 0.1 7.0 0.9 Total 17,956 100.0 16,498 100.0 761.7 100.0 Source: Morocco--Basic Economic Report, 1980, IBRD 3289-MOR.  - 3 - 2.03 The phosphate subsector is managed by the Office Cherifien des Phosphates (OCP), a state-owned enterprise which has full responsibility for mining, exporting and--through its subsidiaries--processing rock phosphate into intermediate and finished fertilizer. The other, non-phosphate, mining activities are under the administrative aegis of the Ministry of Energy and Mines (MEM), which provides general guidance and supervision through the Directorate of Mines (DOM). The Bureau de Recherches et de Participation Minieres (BRPM) is the state-owned enterprise responsible for government participation in mining activities other than phosphate and was also respon- sible for oil and gas exploration and production until 1981. BRPM and its kover 30) subsidiaries undertake mine exploration, development, and operations. These companies, in which BRPM's participation, valued at US$90 million, ranges from 22% to 100%, produce a number of mineral products including iron ore, manganese ore, copper, lead, cobalt and zinc concentrates, silver, salt and barites. BRPM is also responsible for marketing these products as well as CADETAF's concentrates. BRPM employs 1,550 people on its permanent staff, including 191 engineers, while companies in which BRPM holds an interest, have some 13,100 employees. B. The Artisanal Mining Sector 2.04 Artisanal production of lead and zinc concentrates from small and irregular--but very rich--ore deposits (up to 85% ore grade) takes place in the Tafilalet and Figuig region (Map). The term "artisanal mining" is the mining sector equivalent of "cottage industry" used in industry. Specifi- cally it refers to mining undertaken by independent individuals or by small, informal groups, using only hand tools, with very low production rates-- generally no more than a few hundred tons per year by any particular work group. Until 1938, mineral development was forbidden on the disputed southern Atlas mountains for security reasons. Early efforts at mineral exploitation under the French protectorate were stopped by World War II. Reserves in the Tafilalet region were opened to industrial mining companies in 1952 and exploited by the Societe Miniere de l'Atlas Marocain and the Societe Miniere de I'Adrar. Both private firms closed down operations in 1958 as a result of high energy and ore transport costs, difficulties in recruiting technicians to work in the remote regions and gradual depletion of deposits. Local miners, many of whom had worked for these two companies, rapidly initiated unautho- rized artisanal activities. The ore thus mined was sold (illegally) to middlemen operating out of Erfoud. To protect the miners from exploitation and to encourage mining of the numerous known lead and zinc outcrops, legisla- tion was introduced in 1960 leading to the creation of CADETAF anf an artisanal mining concession comprising a contiguous area of about 48,000 km in the Errachidia, Figuig and Ouarzazate provinces. 2.05 The deposits usually occur as fracture filling or veins in carbonate rock. They are narrow, often short and unpredictable and at times they continue below the water table. In most cases, they could not support an industrial operation. Therefore, artisanal mining is not only appropriate, but the only feasible method of exploiting these deposits.  -4- 2.06 In total, some 500 occurrences of lead and some 80 occurrences of zinc are known. With few exceptions, these have never been explored systematically. For 217 lead outcrops and veins known with sufficient certainty from stopes, downward development and past production, CADETAF has made a conservative theoretical reserve estimates given below: Lead Ore Reserves--CADETAF Estimate of 217 Occurrences Ore Reserves Average Grade Lead Reserves ('000 tons) (M) ('000 tons metal content) Proven 653 10.98 72 Probable 662 7.92 52 Total 1,315 9.45 124 The lead reserves thus estimated are equivalent to about 15 times CADETAF's expected annual production including the Project and, thus, are large enough to support the Project; however, actual lead reserves are certainly much larger. New outcroppings continue to be discovered, while extensions of existing mines have led to the discovery of further veins. 2aO7 No attempt has been made to systematically estimate the evidently 1arge zinc reserves. Most zinc deposits are irregular cavity-fillings, requiring systematic exploration by drilling to determine shape, size and content before meaningful estimates can be established. Exploration of somee zinc deposits will be carried out under the Project (para 5.25). 21U8 The level of artisanal production is presently limited by the lack o- ore concentration facilities that can process low-grade ore into a market- able concentrate. In order to be marketable without further processing, the lead and zinc ores mined by the artisans must have a metal content of at least 30% and 35% respectively. By comparison, ore grades of 2% to 9% are viable for development in other mines worldwide. Furthermore, the lack of ore beneficiation facilities results in undesirable exploitation practices, since the miners tend to mine merely the richest parts of a vein, thus despoiling --often irreparably--the deposit. 2.09 Low productivity, due to an almost complete absence of basic mechanized mining equipment, is another factor which limits production. Mining and concentrating methods used by the artisans are manual with only rudimentary equipment such as manual mining hammers, hand winches, wheel- barrows, manual jigs and sluice boxes. Over 50% of the time is now taken up for tramming and hoisting the ore. Also, the lack of mechanized implements makes the work in the mines physically demanding since mining reaches depths of 100 meters below surface. Miners generally work for four weeks, then rest for one week before continuing work in the mine. 2.10 In 1979, artisanal mining accounted for 11,260 tons of lead concen- trate and 5,517 tons of zinc concentrate, equivalent to 11% of Morocco-s lead concentrate exports and 21% of its zinc concentrate exports. Among the some 15,000 miners, an estimated 11,000, or 73%, are thought to be full-time  - 5 - miners having negligible or no side activities. For an estimated 3,000, or 20%, mining is a seasonal activity, interrupted by harvest and other agricul- tural work, not only in the region, but also in other parts of the country. The remaining 1,000, or 7%, pursue mining as a temporary activity, for example when prices are high. About 50% of the miners work their mines on a family basis. Most of the other 50% have organized themselves along tribal lines in several hundred informal miners' associations, having between 5 and 60 members. In addition, there are three formal mining cooperatives with together 169 members (Skendis-50, Hawanit-32, Tamslamt-87). The miners being proudly independent, all groupings are based on partnerships and hired labor is non-existent in the mines. Production varies from 50 kg of concentrate per month for some of the miners who work on an individual basis to 40 tons per month for the largest associations and cooperatives. 2.11 While the Government has granted general mining rights to the local population, it does not administer individual mining rights. The latter is in the hands of the respective local "Djemaa," or Council of Artisans, which sanction individual mining rights along procedures that vary among different sub-regions. This system is not very formal, but has functioned well in the past and few disputes have occurred. In new mining areas within the mining region, which are not under the jurisdiction of the traditional authorities, CADETAF administers the granting of mining rights and issues permits to miners. This applies equally in cases where CADETAF itself has helped develop the mine. During the process, CADETAF cooperates closely with the local representative of DOM and the local authorities to ensure that there are no conflicting claims. The system is expected to work well under the project and does not require any change. III. CADETAF A. Background 3.01 CADETAF was created in 1960 as a non-profit public agency and placed under the authority of MEM whose Directorate of Mines (DOM) exercises the administrative control over CADETAF. Until 1978, CADETAF's head office was in Rabat and its management consisted of BRPM staff who combined their CADETAF responsibilities with other functions. In early 1979, CADETAF's head office was relocated to Errachidia which is in the center of the mining region with a small liaison office remaining at Rabat. At the same time, the management was replaced by a new team working for CADETAF on a full-time basis and being employed by CADETAF rather than BRPM. Both actions have been instrumental in revitalizing CADETAF and the artisanal mining sector and came at a time when metal prices were strengthening after a period of very low prices during 1975-78. B. Objectives 3.02 CADETAF is a mining extension service, (similar to an agricultural extension service), which provides a broad package of support services for the mining operations and social needs of the miners. CADETAF's specific responsibilities include:  -6- (a) purchase and marketing of ore; (b) provision of mining inputs and technical assistance to miners; and (c) provision of social services, such as medical facilities and medical and accident insurance. 3.03 The assistance to the miners, which may vary from place to place, presently can take one or more of the following forms: (i) provision of explosives; (ii) provision of hand tools, such as hammers, shovels, wheel- barrows, sacks and other artisanal mining implements; (iii) transportation of ore from the mine to the collection centers; (iv) pumping in areas where the mineralization extends below the water table; (v) provision of basic medical services; (vi) geological surveys, geometric bearings and other forms of technical assistance; (vii) upgrading of zinc ore in calcination ovens; and (viii) construction and maintenance of mining roads. C. Organization, Staffing and Management 3.04 Operating out of Errachidia, CADETAF presently has seven ore col- lection centers (Map) which serve as concentrate purchase centers and as distribution centers for assistance and materials. The centers usually have an office building, a small warehouse for mining inputs, and scales to weigh ore purchases which are stocked in the open yard (surrounded by a wall). Three of the centers also have a shop for equipment repairs and a nurse for medical assistance. Geological services, carpentry and masonry work are provided by the center in Errachidia. CADETAF also operates self-constructed vertical calcination kilns at Tizi N'Firest and Beni Tadjit for beneficiation of zinc ores with a total capacity of about 20,000 tpy zinc concentrates. It has a branch office in Rabat and an ore storage facility at the mining port of Kenitra-Mehdiya, 30 km north of Rabat. An organization chart is shown on the following page. 3.05 CADETAF's operations are supervised by a 19 member Administrative Board, chaired by a representative of MEM (1), and consisting of representa- tives of other concerned ministries (5) 1/; DOM (1); BRPM (1); the Governors of the Provinces of Errachidia, Ouarzazate and Figuig (3); and miners' repre- sentatives (8). The latter are selected by the Governors of each of the three provinces on a representative basis, and appointed for a period of three years. The Board is not involved in day-to-day management, but sets the guidelines for CADETAF's activities. In particular, the Board must consent to: (i) the annual investment and operating budget; (ii) the price of mining inputs sold to miners; (iii) conditions and terms of equipment loans to miners; (iv) employment and salary guidelines for CADETAF's staff; (v) all contracts with third parties; (vi) application for and acceptance of loans from banks, as well as advances and subsidies from Government; and (vii) CADETAF's financial statements. 3.06 CADETAF is headed by a Director General, responsible for overall management. Its key staff are an ore purchase officer, responsible also for providing mining inputs, one mining engineer and one geologist, jointly 1/ Namely Interior; Finance; Public Works; Labor; and Commerce.  MOROCCO PILOT PROJECT FOR SMALL-SCALE MINING FUTURE ORGANIZATIONAL STRUCTURE OF CADETAF Board Is Centersr General Financial Controller Dbrector General ~~(Ministry of Finance) Erfoud~~~~~~ Gooy OeBeiitnTnin i DirectoretcleUn it Fa Direct r I eCtinei Sect on Amboraty H Section Section Section~Cente SetoCnerScin Su-Cn ector. Scto Febuar 198 1 ol an-26 h Errachidia Havvani t Erfoud H Ksar Moghal Dait H Skendis H Tiz N'Firest |4 Tamslemt H Beni Tadplt H Bou-Arfa H Talsirit - Air Han, - Iminohanou I - Timgharine I Inldustrial Projects Department February 1982 VVorld Bank-22563  -8- responsible for all forms of technical assistance, one financial and adminis- trative officer, and the heads of the ore collection centers. CADETAF's permanent staff totals 250 plus 25 occasional laborers; 40 staff work at the head office, 10 in Rabat and Kenitra, and 200 at the ore collection centers. Salaries for laborers and unskilled workers are paid according to local standards or minimum wage regulations. Salaries for medium and higher level staff, who have to be recruited from other parts of the country, contain bonuses of up to 50% over normal civil service salaries in order to attract qualified staff to Errachidia. Despite the remote location, CADETAF has been able to attract suitable staff, and recruitment of adequately qualified staff is not expected to be a problem in the future. 3.07 CADETAF's new management, appointed in 1979 after relocation to Errachidia, has succeeded in reviving assistance to the miners after the 1975-78 crisis, while at the same time reducing CADETAF's operating expenses. CADETAF's key personnel is competent and motivated, but needs to be strength- ened both in number and available skills to implement the Project (para. 5.38). The distribution of functions between head office and collection centers is adequate; within the head office, some organizational changes are required to reflect the widened scope of future activities (paras. 5.38-5.41). 3.08 CADETAF's day-to-day financial management, including the prepara- tion and presentation of its financial statements, is supervised by a local controller from the Ministry of Finance (MOF). His approval is required for all expenditures above US$50, except for ore purchases where there is no limit, and salaries, which are budgeted. D. Past Operations, Performance and Operating Procedures 1. Ore Purchase 3.09 The artisanal production of lead and zinc ores is purchased by CADETAF at ore collection centers. The lead ores then are upgraded, through further manual crushing and sorting, into marketable concentrates with about 60% metal content. The zinc ores are processed in calcination ovens, which yield a concentrate of about 50% metal content. After upgrading, the Office National des Transports (ONT) transports the concentrate by trucks to Kenitra- Mehdiya (600 km), the ore port from where it is exported in 1,000 to 2,500-ton lots to Europe. 3.10 At present, the miners receive a fixed monthly price for their ore, which is calculated by DOM by deducting certain specified charges from the previous months's average London Metal Exchange (LME) price for lead, and the previous months European Producer Price (EPP) for zinc. The deductions comprise land transportation, port handling, shipping and smelting costs; taxes (zinc: 0.5% on minehead price; lead: 5% on minehead price if the LME price is below or equal to US$870 per ton and 10% if above); transport losses (1.5% on minehead price); and CADETAF-s service margin (25% on minehead price for all administrative costs, investments and technical assistance). Historically, the deductions have averaged 42% of the net metal value, leaving 58% for the miners.  - 9 - 3.11 CADETAF's ore purchases are subject to considerable annual fluc- tuations associated with movements in international lead and zinc prices. The miners tend to increase production when prices are high and reduce if prices fall, as shown in the following table: CADETAF--Annual Concentrate Purchases Year - Lead --------- ---- - Zinc --------- Quantity Price a/ Quantity Price a/ (tons) (US$ per ton) (tons) (US$ per ton) 1962 6,268 154 185 1963 5,795 174 - 212 1964 6,978 278 7,769 324 1965 6,870 318 5,698 311 1966 10,937 262 2,343 282 1967 13,816 229 1,730 273 1968 15,664 240 1,299 262 1969 18,409 289 2,010 287 1970 16,296 304 2,028 295 1971 26,878 254 3,709 309 1972 21,030 302 16,703 377 1973 22,353 430 12,451 851 1974 22,337 593 15,943 1,239 1975 13,260 417 12,250 743 1976 6,232 445 9,130 712 1977 11,443 617 5,627 591 1978 8,071 661 3,543 593 1979 11,260 1,203 5,517 742 1980 9,500 880 6,000 840 1981 b/ 9,000 730 6,000 860 a/ LME settlement price, in current terms. b/ Estimated. 3.12 According to CADETAF's management, the decline in ore purchases during price slumps is accentuated by a tendency of miners to hoard part of their production, hoping for prices to improve. Further, CADETAF's purchases are also shaved during periods of high prices when miners are tempted to sell (illegally) part of their production to other private mining concerns which are willing to pay higher prices than CADETAF. Since such other internal markets exist for high grade ores, the incentive to sell to these markets would be increased by any measures to stabilize prices. Thus a scheme to buffer prices would face severe problems, as it would be very difficult to keep control of the artisanal production which would be essential to the operation of a stabilization fund. Furthermore, the fact that artisanal mining is often not a full-time employment and that the work force is subject to considerable fluctuations argues against the possible effectiveness of such a scheme.  - 10 - 3.13 The ore pricing formula implies that CADETAF's revenues from the 25% withholding margin vary with changing metal prices and artisanal production levels. Further, CADETAF carries a price risk associated with the shipping period of four to six months for the ore to reach the port of destination. The smelter (abroad) pays CADETAF the price prevailing on the arrival date, whereas, as noted, the formula used to calculate CADETAF's payment to the miners is based on prices prevailing in the month prior to the ore purchase. Thus, if prices decline during the shipping period, CADETAF's margin is reduced, and if prices rise, it increases. 2. Services and Technical Assistance 3.14 CADETAF provides explosives and other supplies such as picks, shovels, wheelbarrows, manual drill bits, hammers and ore sacks, which are sold to the miners at cost on a cash and carry basis. CADETAF has first-aid posts at each collection center and three doctors are on contract. They make weekly rounds and are available to miners and their families. CADETAF insures miners for minor accidents with the state Caisse de Secours, paid for through CADETAF's service margin. For more serious job-related illness and accidents, miners are protected by an insurance policy with the private SIDARSA Insurance of Essarda and Casablanca. Apparently, so far this insurance has only had to be used once. 3.15 CADETAF provides technical assistance which has centered around: (i) construction of ore collection centers; (ii) construction and operation of two zinc calcination facilities at Tizi N'Firest and Beni Tadjit; (iii) geological surveys and drillings, mostly to locate the continuation of exist- ing veins and fracture fillings already exploited, but also to identify new deposits; (iv) boring of shafts (vertical) and galleries (horizontal) for exploration and production; (v) de-watering about 60 small mines in the Erfoud sub-region, where underground water would otherwise make production impossible; and (vi) maintenance and repair work of mining roads. 3.16 The various forms of technical assistance are funded out of CADETAF's 25% withholding margin and thus provided free of charge. CADETAF had to reduce its technical assistance because of low revenues during the period of low metals prices from 1975-78. Geological drilling as well as shaft boring were discontinued in 1978 and were only recommenced in 1981, following the recovery of revenues in 1979 and 1980. Shown below are past revenues and technical assistance of CADETAF:  - 11 - CADETAF--Annual Revenues and Technical Assistance Expenditures (DH'000) Year CADETAF Revenues Technical Assistance from Withholding Margin Expenditures 1973 2,948 1,522 1974 5,594 2,594 1975 2,829 3,034 1976 1,574 2,517 1977 2,212 1,846 1978 1,781 1,183 1979 4,269 2,003 1980 3,128 1,900 1981 a/ 2,625 1,500 a/ Estimated. 3.17 Despite the limitations in scope due to equipment, manpower and financial constraints, CADETAF's technical assistance has been effective in supporting artisanal production. Furthermore, CADETAF has been able to allocate its assistance reasonably equitably among the sub-regions and among lead and zinc producers. 3. Financial Situation 3.18 The financial performance of CADETAF over the last 8-year period is summarized below and shown in detail in Annexes 3-1 to 3-3. Summary of CADETAF's Financial Performance 1974-81 (DH '000) 1974 1975 1976 1977 1978 1979 1980 1981 a/ Concentrate Sales (tons) 35,388 31,140 19,504 18,094 13,527 15,777 15,500 15,000 Average Price (DH/ton) 915 616 650 831 949 1,853 1,533 1,390 Concentrate Sales 32,389 19,198 12,678 15,041 12,848 29,241 23,776 20,850 Ore Purchases 22,377 11,317 6,292 8,851 7,127 17,075 12,513 10,500 CADETAF Operating Cost b/ 5,237 6,374 4,980 5,495 3,711 4,730 5,257 4,715 Fixed Assets 1,178 1,534 1,380 1,159 672 318 383 363 Current Liabilities 4,356 8,581 9,768 13,726 12,674 12,588 9,226 10,338 Long-Term Debt (Govern- ment Advance) 200 200 200 - 2,000 2,000 2,000 2,000 Operating Surplus/(Deficit) 6,396 (2,801) (2,409)(13,236) (3,484) 4,291 (1,062) 2,270 Cumulative Reserves/ (Deficit) 14,904 12,208 9,879 (3,262) (6,841) (1,815) (2,822) (749) CADETAF Operating Cost in % of Ore Purchases 23.4 56.3 79.1 62.1 52.1 27.7 42.0 44.9 a/ Estimated. b/ Includes technical assistance to miners.  - 12 - 3.19 CADETAF's capital consists of an interest-free advance from the Government of DH 2 million (US$0.385 million) which, as confirmed by Govern- ment, will not be repayable until the completion of the Project or at the latest until December 31, 1986. As stated (para. 3.10) CADETAF derives its revenues from the 25% withholding margin on the minehead price of the ore. The ore-pricing formula stipulates that 60% of the witholding margin is to cover CADETAF's administrative and investment costs and 40% is to finance assistance to the miners. In practice, the two categories cannot be kept entirely separate because personnel and material are often employed for both categories at the same time. CADETAF, therefore, in its financial statements, accounts for the totality of its operating expenses. However, part of the technical assistance is shown under self-constructed assets, which are fully cepreciated in the same year. Since CADETAF-s revenues from its fixed with- holding margin fluctuate with metal prices and artisanal production, its operating expenses in percentage of ore purchases have varied between 23.4% and 79.1% between 1974 and 1981. If total expenditures are above 25% of ore purchases, CADETAF usually suffers a loss (except when prices rise between ore purchase and sale--para. 3.13), which it must finance either by drawing on reserves or by increasing its current liabilities. 3.20 Up to 1974, CADETAF benefited from favorable prices and increasing artisanal production, enabling it to reimburse the initial US$0.19 million Government advance and accumulate reserves of about US$2.87 million at the end of 1974. In 1975, a sharp decrease in metal prices depressed artisanal production and subsequently CADETAF's revenues. By 1979, the prolonged duration of unfavorable metal prices had developed to crisis proportions. Other factors aggravated the situation: the distance of CADETAF's management (then in Rabat) from the operational area; inadequacies in the technical control system which permitted the over-valuation of ore purchases; and a mi_aagement decision to hold on to over-valued ore stocks in the hope of obtaining better prices. The combination of these factors led to large operating losses and negative cash flows, which severely strained CADETAF's liquidity position and resulted in delays in payment to miners for ore. 3.21 To deal with this crisis, an inter-ministerial commission was appointed in July 1978. It recommended separating management from BRPM and making it exclusively responsible for CADETAF: a reform of the accounting system and practices- and relocation of the head office from Rabat to Errachidia. These measures were implemented in March 1979, supported by an interest-free Government advance of US$0.385 million (para. 3.19). Sharply higher metal prices in 1979 have also greatly contributed to a recovery of ore production and a strengthening of CADETAF's financial position. Another step was to reduce CADETAF's inflated field staff: personnel costs, in current terms, were 10% lower in 1979 than in 1977. For the first time since 1974, CADETAF, in 1979, had an operating surplus of US$1.23 million. CADETAF's operating result in 1980 was slightly negative at minus US$0.2 million. For 1981, an operating surplus of US$0.44 million is estimated. 3.22 CADETAF's accounts are kept by a qualified bookkeeping staff who prepare annual income statements and balance sheets as well as an operating and investment budget. The accounting system is subject to the financial control of the MOF in lieu of an external audit. Presently lacking are a cost  - 13 - accounting system and a budgeting system permitting the setting of objectives for individual operating units and to measure performance against objectives. Equally lacking is a system for long-term financial planning which, given CADETAF's environment, would be particularly beneficial. Both areas are addressed under the proposed Project (para. 5.35). IV. MARKET ASPECTS FOR LEAD AND ZINC A. Market Conditions and Outlook for Lead 1. Lead Production and Reserves 4.01 World reserves of contained lead are estimated at 115 million tons, of which 82 million tons (71%) are found in the USA, Canada and Australia. In addition, 125 million tons of lead resources are known and the prospect for discovery of additional reserves is highly favorable. 4.02 The supply of lead comes from two sources--mine production (60-70%) and scrap (or secondary) recovery (30-40%). Five countries--USA, Australia, Canada, Mexico and Peru--supplied 62% of world mine production of 2.6 million tons in 1980. Sixty-three percent of production was exported, mainly to Europe and Japan. Morocco accounted for 126,000 tons or 4.6% of world production, of which 90% was exported to Europe and the remainder consumed domestically. Seventy percent of lead mine output is from co-product or by-product production, mainly in combination with zinc but also with silver and copper. Primary lead production is therefore affected to a degree by the market situation for these other metals. During the 1960s, primary lead production increased by 3.8% annually, but stagnated in the 1970s, when it actually declined in the industrialized countries, as follows: Lead--World Production and Consumption 1960-81 a/ (O000 tons) Average Annual % Growth Rates Mine Production 1960 1965 1970 1975 1980 1981 c/ 1960-70 1970-80 Industrialized Countries 961 1,171 1,674 1,604 1,537 1,344 5.7 (0.9) Developing Countries 826 873 909 908 999 1,013 0.9 1.0 Total 1,787 2,044 2,583 2,512 2,536 2,357 3.8 (0.2) Consumption b/ Industrialized Countries 2,008 2,330 2,772 2,504 3,074 2,973 3.3 1.0 Developing Countries 217 368 458 689 855 869 7.8 6.4 Total 2,225 2,698 3,230 3,193 3,929 3,842 3.8 2.0 Source: 1965-75--EPD; 1980-81--Int-l Lead and Zinc Study Group. a/ Excludes Centrally Planned Economies (CPEs). b/ Includes consumption of secondary sources. c/ Estimated.  - 14 - 2. Lead Consumption 4.03 The principal use of lead is for storage batteries which account for nearly 50% of world lead consumption. Gasoline additive, cable sheathing, chemicals and soldering are other important uses. Consumption grew steadily in the 1960s, but growth rates fell off in the 1970s, as shown above, espe- cially in industrialized countries as a result of the slump in automobile manufacturing and the shift to smaller cars with lighter batteries following the oil crisis in 1973-74. However, growth of consumption was also reduced by other factors, including a decline in the use of lead as a gasoline additive and substitution by plastics in a variety of uses, including building con- struction, electrical cable covering and in cans and containers. Net imports by CPEs averaged 30,000-50,000 tpy in the early 1970s and increased to over 100,000 tpy in 1978 and 1979. 3. Lead Supply/Demand Balance and Price Prospects 4.04 Concern over future lead prices resulted in investment decisions in new mines being delayed by a "wait and see" attitude during the early and mid-1970s. However, investment strengthened in the late 1970s and latest estimates indicate an additional 200,000-300,000 tons (metal content) of new primary capacity under construction or on stream by 1985, including the Aggeneys mine in Namibia starting production in 1981 with an eventual capacity of 90,000 tpy metal content. In addition, there are many known ore bodies in the main producing countries with good lead grades suitable for development. 4.05 The future demand for lead depends largely on the battery sector since the use of lead as a gasoline additive is expected to decline further and no growth is foreseen in other uses such as cable covering or chemicals. Consumption of lead in the traditional battery market is expected to increase steadily in the 1980s. Lead will also likely be required for batteries for electric vehicles in the late 1980s. Recent assessments by various industry and other groups including the forecast prepared by the Economic and Analysis Projections Department and issued in IBRD Report 814/80 indicate a growth rate in the 1980s of between 1.4% and 3.3% annually, as shown below: Comparison of Different Long-Term World Lead Market Growth Rate Estimates Average Annual % Date Source Period Growth Rate 1976 USBM (United States) 1973-2000 2.6 1978 AME Pty. Ltd. (Australia) 1978-1990 1.4 1979 Rayner Harwill (England) 1980-2000 2.0-2.5 1980 IBRD Report 814/80 1980-1990 3.3 1980 St. Joe Minerals (United States) 1980-1990 1.8 1980 Chase Econometrics (United States) 1979-1990 2.8  - 15 - 4.06 This report estimates future consumption growth at 2.0% per year based on the following assumptions: (i) 2.0% per year growth in lead requirements for conventional batteries in industrialized countries; (ii) 400,000 tpy lead requirements for electric vehicle batteries in industrialized countries in 1990; (iii) zero growth in lead use by other sectors in indus- trialized countries; and (iv) 3.75% per year consumption growth from 1980-90 in developing countries. Bringing together the production and demand trends, the outlook for lead supply and demand is that production will exceed demand in the early 1980s, but supply and demand will be in balance in the mid-1980s as shown below: Lead--World Supply/Demand Balance 1980-90 a/ ('000 tons) Average Annual % Growth Rate 1980 1981 1985 1990 1980-90 (actual) (est.) Mine Production 2,556 2,540 2,760 3,120 2.0 Refined Production 4,257 3,979 4,450 5,070 1.8 Refined Consumption 4,114 3,775 4,410 5,030 2.0 Refined Exports to CPEs 144 63 40 40 (12.0) Total Refined Demand 4,258 3,838 4,450 5,070 1.8 Surplus/(Deficit) (1) 141 - - - a/ Excludes CPEs except for refined exports to CPEs from LDCs and industrial- ized countries. 4.07 Virtually all the world's lead outside North America is traded at the LME price, or prices based on the LME price. The LME price is set on a twice daily basis and is extremely sensitive to changes in supply and demand, with an average change of plus/minus 15% annually from 1955-78. During the late 1970s, a strong price boom occurred when consumption consistently exceeded supplies due to a combination of factors, including: (i) a loss of lead production capacity resulting from lead-zinc mine closures due to depressed zinc prices; and (ii) unexpectedly high battery demand for three years in a row following severe winters in 1977, 1978 and 1979. In 1979 prices averaged US$1,203 per ton but in 1980 a surplus occurred and prices averaged US$906 per ton. 1/ 1/ LME lead price has fallen to US$660 per ton in March 1981 as a result of lower than expected consumption during the mild winter of 1980.  - 16 - Past Lead Prices and Projections a/ (US$ per ton) Current Prices Constant Prices (1980 terms) 1960-64 200 749 1965-69 267 979 1970-74 379 970 1975 417 699 1976 445 732 1977 617 939 1978 661 853 1979 1,203 1,355 1980 906 906 1981 730 700 1982 825 733 1985 1,230 880 1990 1,650 880 a/ LME settlement price, good, soft, pig lead; 1960-81 actual; 1982-90 projected. 4.08 Lead prices are projected to recover from their 1981 low to US$880 per ton in 1980 terms by 1985 and to continue at that level until the end of the decade, as shown above. This is based on estimates of total produc- tion costs for refined lead of US$770-880 per ton in 1980 terms for new production units and US$425-850 per ton (in 1980 terms) for existing opera- tions. This is more conservative than the most recent (December 1981) IBRD forecast of US$980 per ton in 1990 (in 1980 terms) and is used in view of the sensitivity of the financial projections to the price assumption. This forecast is a long-term trend price that assumes no major imbalance occurs between supply and demand and that lead producers adjust production to keep supplies broadly in line with demand. B. Market Conditions and Outlook for Zinc 1. Zinc Production and Reserves 4.09 World reserves of zinc are estimated at 138 million tons (contained metal), of which 73 million tons (52%) are located in Australia, Canada and the USA. The remaining reserves are widely distributed in many countries. In addition, 121 million tons of resources are known. If all other reported zinc deposits, including presently sub-economic resources, were included, the world total would be 5.6 billion tons, including 800 million tons of ocean nodules.  - 17 - 4.10 Australia, Canada and the USA accounted for 47% of the world mine production of zinc of 4.6 million tons in 1980; 63% of the production of these three countries was exported, largely from Canada and Australia to Europe. Morocco accounted for 20,000 tons or 0.3% of world production, all of which was exported to Europe. In addition to world primary production, there are small amounts of zinc scrap recycled, mainly in the USA. 4.11 World zinc production grew strongly in the 1960s, but stagnated in the 1970s due to low demand as follows: Zinc--World Production and Consumption 1960-81 a/ ('000 tons) Average Annual % Growth Rates Mine Production 1960 1965 1970 1975 1980 1981 c/ 1960-70 1970-80 Industrialized Countries 1,666 2,404 3,056 3,023 2,699 2,795 6.3 (1.2) Developing Countries 963 1,058 1,273 1,526 1,830 1,593 2.8 3.7 Total 2,629 3,462 4,329 4,549 4,529 4,388 5.1 0.5 Consumption b/ Industrialized Countries 2,191 3,524 3,307 2,779 3,381 3,378 4.2 0.2 Developing Countries 264 373 595 773 1,110 1,125 8.5 6.4 Total 2,455 3,897 3,902 3,552 4,491 4,503 4.7 i:; a/ Excludes CPEs. b/ Includes consumption of secondary sources. c/ Estimated. 4.12 In the mid-1970s, additional new production came on stream, including two large mines at Tara, Ireland, and Rubilas, Spain, resulting in a worldwide capacity utilization of only 80-85% in the late 1970s. Despite the closure of several small mines and older smelters, considerable surplus capacity presently exists, especially in European smelting capacity and in mine capacity of developing countries. 2. Zinc Consumption 4.13 The major uses of zinc are as a protective coating for steel and in die-casting production for automobile components. Construction and transporta- tion account for over 50% of zinc consumption. These two industries are extremely sensitive to business cycles, making zinc consumption very volatile on a year-to-year basis. Other markets include the direct use of zinc as an alloy in brass and bronze castings and the use of zinc oxides for ceramics, paints, chemicals and rubber manufacture. But zinc is prone to substitution because it is relatively heavy and has a low strength-to-weight ratio, and has lost its market share in various uses to other materials such as aluminum and plastics, especially in recent years.  - 18 - 4.14 Zinc consumption grew strongly in the 1960s, but growth rates declined in the 1970s, especially in the industrialized countries where the amount of zinc per automobile declined from 80 lbs in 1968 to 28 lbs in 1979. Over 90% of the industrialized countries consumption is imported, compared with 22% for developing countries. In the 1960s and early 1970s, CPEs were net importers of zinc concentrates but exporters of zinc metal. However, metal exports declined in the 1970s and in the late 1970s CPEs were net importers of metal as well as concentrates. 3. Zinc Supply/Demand Balance and Price Prospects 4.15 Despite the present excess capacity in the zinc industry, many new projects are planned or under construction, especially in areas with low operating costs such as Australia and Latin America where many producers have costs in the US$660-770 per ton range compared with US$880-1,100 per ton for many older European producers. Industry estimates indicate a growth of as much as 500,000 tons in annual zinc production capacity from 1980-85 mainly in the regions with low production costs. 4.16 Prospects for future zinc consumption growth are limited. Growth possibilities exist in the areas of coatings for steel corrosion protection, in builders hardware and in foundry uses. However, these markets are likely to provide only modest increases in zinc usage. Also, the development of new uses for zinc through thin-wall and one-sided die-casting only requires limited quantities of zinc. Estimates of future long-term growth rates for zinc consumption vary from 1.5-2.9% per year, except for IBRD Report 814/80, which estimates 5.1% per year, as shown below: Comparison, of Different Long-Term World Zinc Market Growth Rates Average Annual % Date Source Period Growth Rate 1976 USBM (United States) 1973-2000 2.2 1978 Malenbaum (United States) 1975-2000 2.9 1979 IBRD Report 814/80 1980-1990 5.1 1980 CRU Ltd. (England) 1980-1990 1.5 1980 Chase Econometrics (United States) 1979-1990 3.1 4.17 This report estimates the future growth rate in zinc demand at 2.6% per year from 1980-90. This forecast is based on estimates of annual demand growth for different regions as follows: (i) 1.7% per year in US and Europe; (ii) 3.5% per year in Japan; and (iii) 4.5% per year in developing countries. Based on this estimate of demand and on the preceding assessment of supply the outlook for zinc is that excess production capacity will persist and that capacity utilization will be below 90% in the early-mid 1980s, if inventory build-ups are to be avoided.  - 19 - Zinc--World Supply/Demand Balance 1980-90 a/ ('000 tons) Average Annual % 1980 1981 1985 1990 Growth Rate (actual) (est.) 1980/90 Mine Production 4,642 4,530 5,260 6,090 2.8 Refined Production 4,701 4,454 5,260 6,090 2.6 Refined Consumption 4,636 4,424 5,230 6,060 2.7 Net Exports to CPEs 77 66 30 30 (9.0) Total Refined Demand 4,713 4,490 5,260 6,090 2.6 Surplus/(Deficit) (12) (36) - - _ a/ Excludes CPEs. 4.18 Most zinc is traded in Europe either at the producer price set by European producers or at the LME price. The two prices are closely linked. Like lead, zinc prices are very volatile with an average annual change of plus/minus 18%. Zinc prices went through a peak during the demand boom in 1973-74 and subsequently declined steadily in the face of surplus capacity and high inventories during the mid-1970s. However, production cutbacks by producers resulted in consumption exceeding production in the late-1970s, and prices increased from US$593 per ton in 1978 to US$900 per ton in 1981. Past Zinc Prices and Projections a/ (US$ per ton) Current Prices Constant Prices (1980 terms) 1960-64 240 899 1965-69 280 1,040 1970-74 611 1,620 1975 743 1,250 1976 712 1,179 1977 591 899 1978 593 760 1979 742 829 1980 783 783 1981 900 859 1982 945 800 1985 1,230 880 1990 1,720 920 a/ LME Settlement Price; 1960-81 actual; 1982-90 projected.  - 20 - 4.19 Production costs for new capacity are estimated at US$800-900 per ton in 1980 terms. In view of the excess capacity, it is expected that zinc prices will remain around the lower level of this range in 1982. However, as capacity utilization rates increase during the 1980s, it is expected that prices will rise, reaching around US$900 per ton in 1985 and US$960 per ton in 1990 (both in 1981 terms), by which time capacity and consumption should be approximately in balance. This is lower than the most recent IBRD forecast of US$1,090 per ton in 1990 (in 1981 terms), which is viewed as an optimistic forecast since it is based on an assessment of in- creased demand bringing production capacity and consumption back into balance by 1985. The present report represents a more conservative view. As with lead, the forecast is a long-term trend price and prices in any particular year may be US$50-100 per ton above or below the trend depending on the prevailing supply/demand balance. C. Market and Marketing of CADETAF-s Concentrates 4.20 CADETAF's lead and zinc concentrates are marketed by the sales division of BRPM, which, on behalf of CADETAF, concludes annual contracts with 3-4 lead smelters and 1-2 zinc smelters in Western Europe. The con- tracts, in which the smelter purchases the concentrate--as compared to custom smelting--have terms and conditions that are in line with the industry's practice 1/ and do not contain any unusual clauses. Even with the proposed production increases, CADETAF's production will be very small by market standards. The structure of the European lead and zinc industry is such that even in difficult market conditions, CADETAF can be assured of being able to have its concentrates processed and sold, either to established customers or through traders on the LME. This is true whether the concentrates are shipped to the domestic smelter PZ or to European smelters. Further, CADETAF's concentrates are well accepted because, from a metallurgical point of view, they are simple ores and comparatively easy to smelt. 4.21 The ore is shipped from the port of Kenitra-Mehdiya, about 30 km north of Rabat. Individual shipments for each of the three main ore types, i.e., zinc-calamine, lead-galena both with about 60% metal content, and lead-galena with 40-50% metal content, must average 1,500-2,000 tons, because of vessel availability and customer specifications. The average time required to accumulate the tonnage for a shipment is 3-4 months. Payment for the ore is based on the average LME price (lead) or European Producer Price (EPP) (zinc) of the calendar month following arrival at the port of destination. 1/ Lead: Delivery is CIF European port. The smelter pays 95% of the lead content and 98% of the silver content above 30g/t, and deducts: (i) a lead smelting charge that varies slightly with the lead price; (ii) a fixed refining charge for silver; and (iii) a fixed crushing fee. Zinc: Delivery is CIF European port. The smelter pays 85% of metal content and deducts: (i) a smelting charge that varies slightly with the zinc price; and (ii) a fixed crushing fee.  - 21 - Upon presentation of the provisional invoice and freight papers for a particu- lar shipment, CADETAF receives an installment of between 75% and 90%, depending on the customer (smelter). The balance is paid after the invoice is finalized, usually 2-3 months later. 4.22 In 1980, agreement in principle was reached between DOM, CADETAF and the Moroccan lead smelter PZ, that in the future CADETAF will deliver lead concentrates to PZ, which has recently expanded its smelting capacity from 35,000 tpy to 50,000 tpy. Located at Oued el Heimr near Oujda in north- eastern Morocco, PZ is owned by several state enterprises (51%) and Zellidja, S.A., a mining company of the Penarroya Group (49%). Delivery to PZ has two important advantages for CADETAF. First, ore shipments can be smaller and more frequent, thus reducing working capital requirements and financial charges. Second, the time lag between ore purchase from miners and payment by the smelter will be reduced from presently 5-6 months to 1-2 months, thus decreasing CADETAF's exposure to metal price fluctuations. Terms and conditions of the 1981 contract between CADETAF and PZ, which has been reviewed by the Bank, are very similar to the existing contracts. However, delivery of lead concentrates to PZ will not limit CADETAF-s marketing options. PZ's annual contract offer will compete with those of other customers and CADETAF will select the most advantageous one. 4.23 Recently a technical marketing problem has surfaced which, for the time being, concerns only the zinc concentrate. Due to the lack of mechanical crushing and grinding facilities, CADETAF's concentrates--both lead and zinc--are coarse and of irregular grain size, i.e., 20-100 mm. The remaining crushing and grinding required to feed the ore to a smelter is done by CADETAF's customers for a fee of US$1.00-1.50 per ton. In September 1980, CADETAF's only zinc ore customer closed down and the zinc ore had to be stockpiled for about 6 months until it could be custom-crushed by several mines in the vicinity of CADETAF, since all other prospective zinc customers required that the ore be delivered in grains below 5 mm in size. In order to make CADETAF independent from crushing facilities at the smelter and to facilitate sale of the zinc ore, financing of a crushing and grinding unit is proposed under the Project (para. 5.15). V. THE PROJECT A. Project Objectives and Scope 5.01 The proposed pilot Project is designed to: (i) permit the mining and beneficiation of low-grade ores, leading to more rational mining and ending the waste of deposits; (ii) increase production and productivity of the artisanal miners; (iii) establish a sound geological basis for future artisanal mining; and (iv) improve and extend CADETAF's services to the miners. The Project will have to achieve these objectives in an environment where the decision to produce is made by thousands of independent individuals. The Project, there- fore, is also designed to test the miners' reaction to various components and  - 22 - operating procedures, in particular their production behavior, to determine if and how future assistance should be provided. Benefits from the Project will not be limited to those miners with high average incomes. Practically all miners will benefit from CADETAF's enhanced capacity to provide assistance. In addition, about 50% of all miners, or 7,500 are expected to utilize the beneficiation facilities, and another 10% or 1,500 will, in addition, take advantage of mechanized mining equipment. As a result of the Project, the production of lead concentrate is expected to increase from presently 8,000 tpy to about 20,000 tpy and the production of zinc concentrate from presently 6,000 tpy to about 13,000 tpy. B. Project Description 5.02 The Project, which will be implemented over a four-year period, contains the following components: (a) a mobile lead concentrator with a capacity to treat about 36,000 tpy of low-grade lead ore during 10 operating months; (b) a mobile zinc concentrator with a capacity to treat about 29,000 tpy of low-grade zinc ore during 10 operating months; (c) a crushing and grinding unit at Tizi N Firest to process coarse, hand-sorted concentrates into a material with a grain size below 5 mm; (d) mechanized equipment and mine works for 3 cooperatives, 6 miners associations in the Taouz sub-region and some 30 other miners associations; (e) establishment of a training mine as training center for the application of new mining equipment and techniques; (f) geological studies and works including a metallogenic study, a geochemical survey and drilling and tunnelling to investigate ore reserves; (g) construction of four additional ore collection centers and four additional sub-centers in areas where miners at present do not benefit from CADETAF's services; (h) additional workshop equipment for the existing and new ore collection centers, including two mobile workshop units to carry out maintenance and repairs; (i) equipment for two ore assaying laboratories; (j) a socio-economic study of the artisanal mining sector; and (k) technical assistance (financial/management) to CADETAF.  - 23 - Detailed technical data on the project components are presented in Project File A. The following paragraphs describe the main project activities and their expected results. C. Detailed Features 1. Mobile Lead Concentrator 5.03 The lead concentrator is a combination of the two main processes for beneficiation of lead ore: gravimetric separation, based on the difference in specific gravity between the mineral to be recovered and the waste; and flotation which effects separation through application of chemical reagents. The ore will first be treated by gravimetric separation, which will recover the more coarsely-grained portion of the galena ore, and then by flotation which will recover the galena fines and lead ore, occurring as cerussite. A mobile plant has been chosen, because artisanal production in the immediate vicinity of any given location is insufficient to ensure continuous full capacity utilization, and road transport of untreated ore over distances of up to several hundred kilometers to a central, fixed plant is commercially infeasible. 5.04 The main components of the concentrator are: a crushing and grind- ing section, including screening; a gravimetric section; a flotation section; a section to thicken and discharge the waste, as well as to recycle process water; and a power generating section. Each section will be mounted on mobile bases with wheels for haulage by tractor, which will be rented from ONT. The sections will be interconnected by conveyor belts and hopper bins. Auxiliary equipment includes a laboratory for assaying of the ore, a 1.2 m front-end loader and a 12-ton truck for ore transport. A detailed equipment list is given in Annex 5. Regarding infrastructure, watertight tailings ponds will be prepared to receive the flotation effluents. 5.05 3Both flotation and gravimetric separation require process water of up to 5 m per ton of low-grade ore, two thirds of which can be recycled. Water availability in all prospective concentrator locations has been verified and confirmed by CADETAF. 5.06 The concentrator will operate on three shifts requiring 39 staff, including one technician and 3 foremen, one for each shift. The technician will be trained for two months at the supplier's plant, while foremen and workers will receive on-site training by the supplier for five months. 5.07 Based on 36,000 tpy of low-grade ore feed at 10% Pb and a conserva- tive metal recovery factor of 85%, the plant will produce 4,570 tpy of lead concentrate at 67% Pb during 10 operating months per year. During its expected lifespan of 15 years, the concentrator will consume an estimated 540,000 tons of low-grade ore. At least 480,000 tons will come from proven reserves in artisanally mined deposits, although it is likely that the reserves and thus production will be higher. The remaining 60,000 tons will, to the extent  - 24 - needed, come from about 300,000 tons of tailings and rejects presently stock- piled in the region. About 200,000 tons of these come from former industrial gravity separation plants. The other 100,000 tons are rejects from hand- sorting or from low-grade ore unavoidably mined and then discarded at the minehead. 5.08 The mobile concentrator will rotate among eight locations, i.e. El Hawanit, Ksar Moghal, Beni Tadjit, Talsint, Tizi N Firest, Tiza, Iminohanou and Taouz, as shown on the Map. In each location the concentrator will remain for a period of 5.5 months, of which 0.5 months are assumed for relocation activities (start-up, shut-down, transport) and five months for production. After two locations, or eleven months, major maintenance and repair work will be carried out during the twelfth month. The 4-year cycle has been chosen in view of expected artisanal production and in order to distribute the con- centrator benefits equitably. To move the concentrator, CADETAF will rent tractors from ONT. The road connections between the locations are mostly dirt roads, passable for trucks. Where required, CADETAF will carry out road repairs necessary to move to the next location. Staff, housed in tents, will relocate together with the concentrator, which CADETAF has assured will be no problem. 5.09 To feed the concentrator, CADETAF will purchase low-grade ore from the artisans at the rate of 375 tons per month and location, or 36,000 tpy. To ensure full capacity utilization of the concentrator, each location must have 15,750 tons of stock on the date the concentrator arrives. This implies the build-up of stocks in each location over a 42-month period. The resulting stocks to be maintained at any given moment are thus 63,000 tons. Until the artisanal production accumulated in each location is sufficient to feed the concentrator, CADETAF will utilize old mine tailings left over by foreign mining companies in the 1950s (para. 5.07). The tailings will also serve as back-up feed later if artisanal production were to fall below the expected levels. Available in each of the eight locations, they total, as already noted (para. 5.07), 200,000 tons, equal to about six years of feed, at 4-5% Pb. Due to their low metal content, the tailings had no value previously and were abandoned after being originally mined. Since these ore dumps will take on a commercial value as a result of the Project, the question had arisen as to whether they are owned by CADETAF, the Government or by the miners who have the mining rights in the region. Recently Government has decided, that the old mine tailings belong to the Government but CADETAF will be allowed to use them as necessary and free of charge. The utilization of tailings and artisanal production, as well as the build-up of ore stocks that CADETAF will have to maintain, are shown below:  - 25 - Lead Concentrator--Artisanal Production, Feed, Low-Grade Ore Stocks (tons) 1984 1985 1986 1987 1988 1989 1990 Artisanal production 12,000 32,000 36,000 36,000 36,000 36,000 36,000 Concentrator feed - of which tailings 10,500 24,000 18,250 9,250 13750 250 - - of which artisanal production 1,500 9,000 17,750 26,750 34,250 35,750 36,000 Low-grade ore stocks from artisanal production 10,500 33,500 51,750 61,000 62,750 63,000 63,000 It must be emphasized that the production model above represents merely the best estimate available and that actual artisanal production could be very different. If it is lower, CADETAF will have to use more tailings. Should miners, on the other hand, achieve and maintain much higher production rates, then CADETAF will not be able to purchase all production for lack of capacity. 2. Mobile Zinc Concentrator 5.10 The zinc concentrator will preconcentrate low-grade calamine ore by gravimetric separation to a metal content of 35%. After preconcentration, the zinc ore will be further upgraded in CADETAF-s existing calcination facilities (para. 3.04) to a marketable concentrate of 46% metal content. A mobile plant has been chosen for the same reasons as the mobile lead concentrator (para. 5.03). The main plant components, as well as auxiliary equipment, are the same as for the lead plant (para. 5.04), except for the flotation section, which the zinc plant does not have. A detailed equipment list is given in Annex 5. Also, watertight tailings ponds are not required because the process water is not polluted but merely dirty. CADETAF has equally verified and confirmed the availability of process water at each prospective location. 5.11 The plant will have a three-shift operation requiring 16 staff, including one technician and three foremen, one for each shift. The technician will be trained for two months at the supplier-s plant, while foremen and workers will receive on-site training by the supplier for five months. 5.12 Based on 29,000 tpy of low-grade ore feed at 15% Zn and a conserva- tive metal recovery factor of 80%, the plant will produce 9,940 tpy of zinc concentrate at 35% Zn, representing, after calcination, 7,560 tpy of zinc concentrate at 46% Zn. During its lifespan of 15 years, the concentrator will consume about 435,000 tons of low-grade ore. Present production is sufficient for the concentrator (para. 5.14), and reserves--while no systematic assessment is available--are large. In addition, CADETAF has 87,000 tons of its own all-grade zinc stocks at 7-30% Zn, which are rejects from former pur- chases from the miners due to low grade. 5.13 The mobile zinc concentrator will rotate initially among two loca- tions, i.e., Tizi N-Firest and Beni Tadjit (Map), adjacent to the existing calcination facilities. Once CADETAF has constructed calcination ovens at El  - 26 - Hawanit, that location will be added. Three locations are sufficient for the zinc concentrator because the occurrence of zinc ore is limited to these three areas. The sequence of relocation is the same as for the lead concentrator (para. 5.08). 5.14 To feed the concentrator, CADETAF will purchase all-grade ore from the artisans at the rate of about 1,200 tons per month in each of the two initial locations, or about 29,000 tpy. Present production rates are com- parable, i.e., 2,350 tons per month, assuming that for each ton of ore now purchased by CADETAF of 35% Zn or above, an additional 2.4 tons were mined out, but had to be rejected because of their low grade. To ensure full capacity utilization of the concentrator, each location must have 8,350 tons of stock on the date the concentrator arrives, and CADETAF must therefore maintain a stock of 8,350 tons at any given time. During the first six months--and as back-up reserve--CADETAF will utilize its own stocks of all- grade zinc, equal to three years of feed (para. 5.12). 3. Crushing and Grinding Unit 5.15 The unit will consist of a jaw crusher of 10-15 tons per hour (t/h) capacity, the necessary vibrating screens and conveyors and two 50-ton storage bins, one for lead and one for zinc. It will produce ore of small and even grain size at 5 mm or below. A detailed equipment list is given in Annex 5. 5.16 The unit will treat all artisanal production of high-grade, hand- sorted and hand-washed ore that is immediately marketable and thus bypasses the concentrators. The unit will be located at Tizi N-Firest where 100% of all zinc ore and 60% of all lead ore pass through directly. The rest of the lead ore passes within 10 km of Tizi N'Firest. 4. Equipment and Works for Pilot Mines 5.17 Mining, tramming, hoisting and pumping equipment will be provided to selected pilot mines. In some of the mines, CADETAF will in addition construct collector drifts for underground transport of ore. The proposed equipment is small, simple to operate and well within the present capabilities of the miners. It also does not require large back-up maintenance facilities. The main types of equipment and mine works are: (a) hoists of swing-boom type with a 2-ton capacity and 130 m hoisting depth, either mechanical or driven by compressed air; (b) compressors varying from 2.5 m /min to 12.6 m /min, but pre- dominantly with 3.0 m /min. The larger compressors will be installed in mines which require pumping and/or hoisting; (c) jackhammers, weighing 11 kg and chosen to be easily handled and held in position by one man, without mechanical support;  - 27 - (d) mine cars of 500-liter capacity, running on 60-cm gauge track of 9 kg/m rail. A turntable will be provided for each 100 m of drift; (e) pumps of the type already in use; (f) light downhill aerial tramming equipment for miners on high slopes or on top of mountains. This will cut down on mule transport and on long truck hauls to the valley; and (g) driving of 100 m foot wall collector drifts with cross cuts and shafts for tramming and hoisting in each of six mines at Taouz. These works will be carried out by CADETAF. 5.18 Equipment and mine works above are designated exclusively for lead mines where the optimal mining method, as well as the appropriate equipment, is readily determined due to the vein-type deposits being mined. The zinc deposits, which often are cavity fillings, require more systematic exploration by drilling to determine shape, size and content before the best mining method and equipment can be identified. The geological work on the zinc deposits (para. 5.25) will lay the groundwork for future assistance to zinc miners. 5.19 The recipients of equipment and mine works will be the three exist- ing mining cooperatives, i.e., Hawanit, Skendis and Tamslamt, six miners associations at Taouz and some 30 other mines operated by miners- associa- tions or on a family basis. The cooperatives and the Taouz mines have been selected by CADETAF based on the quality of deposits being exploited, the level and continuity of production, and the technical experience of the miners. The some 30 other mines will be selected according to appraisal guidelines agreed with the Bank. The 39 pilot mines will be distributed throughout the mining region and are estimated to provide the livelihood for some 1,500 miners and their families. During the project implementation period, assistance will be limited to these some 39 mines because of the pilot nature of the Project and CADETAF-s implementation capacity. Starting in 1986, assistance will be provided to additional mines from repayments by the pilot mines (para. 6.11). 5.20 Equipment and mine works will be made available in six different packages, tailored to technical requirements and production levels of individual or groups of mines; one for each cooperative, one for the 6 mines at Taouz, one for 20 of the other mines and one for the remaining 10 mines. The equipment for each mine category is given in Annex 5. The investment involved has been estimated (in average 1983-85 current terms) at US$166,000 per Taouz mine, US$92,000 per cooperative, and US$30,000 per other mine. 5.21 Drilling is, and will be, done dry by hand-held drills in dry ground and will produce dust. The introduction of wet drilling, which requires a supply of water under pressure at the mine face, is beyond CADETAF-s power to impose on the miners. The ground is calceous, so that the risk of silicosis is small. However, CADETAF will consult a mine doctor regarding whether lead or zinc sulfide dust can be absorbed through the lungs. If so, dust masks must be provided and the miners be persuaded to wear them when drilling.  - 28 - 5. Training Mine 5.22 To familiarize miners with new equipment and mining techniques, CADETAF will open up a training mine. The site selected is on the Ain Dermchane vein in the Keba area, 10 km from Errachidia and close to the main road. The mine will be equipped with 2 compressors, 2 jackhammers, a hoist, 200 m of track, 6 mine cars and timber for underground support. A detailed equipment list is given in Annex 5. Underground supervision will be in the hands of a foreman, two miners and two drillers, assisted by two laborers. CADETAF's professional staff will give formal instructions where required. Miners will be lodged in two big tents at the mine site. Board will be provided by CADETAF. 5.23 Courses will focus on practical demonstration with the necessary minimum of formal instruction. Each course will have about 10 participants and last about 1-2 months to limit the miners absence from their own mines. Under supervision of CADETAF staff, the trainees will actually develop the mine and, at the same time, produce lead concentrate, the revenues of which will help cover the operating cost of the mine and can be used to compensate the participating miners for the income foregone from their own mines. 5.24 The areas in which miners will receive basic training include: (i) operation, performance and maintenance of simple mining equipment; (ii) execution of underground mine works; (iii) mining techniques; (iv) blasting methods; (v) mine safety; and (vi) basic mine management. Not every course can touch on all subjects, because the course content will be adapted to the actual development work required at a given time. This will apply in particular to mine works. In such cases, CADETAF will reschedule the participants for a second course at a later time. CADETAF has agreed to prepare its detailed training program in cooperation with the training section of MEM and the Ecole Nationale de l'Industrie Minerale (ENIM). CADETAF will (i) prepare the program, including the selection criteria for trainees, and submit it to the Bank not later than September 30, 1982, for comments, and (ii) promptly thereafter, implement said program, taking into account the Bank-s comments thereon. 6. Geological Studies and Works 5.25 The geological program consists of 3 components: (a) a metallogenic inventory of lead and zinc occurrences throughout the mining region; (b) a geochemical survey of several sub-regions predetermined by CADETAF; and (c) a detailed estimate of lead and zinc reserves in 3 deposits at Taouz, 1 at Iminohanou, 1 at Hawanit, 1 at Ksar Moghal, 1 at Dait, including about 600 m of tunnelling, 400 m of vertical driving and 20,000 m of drilling. A detailed equipment list as well as consultancy man-months is given in Annex 5.  - 29 - 5.26 The metalloganic survey, which will cover the whole region, will start from areas already being mined where data can be obtained most readily, and then spread to the lesser-known areas. It will include surveying and geological mapping to scales of 1:2,000 to 1:5,000 of geological units and individual deposits, trenching and sampling, and possibly some pitting and drilling. The survey will be carried out by consultants over a period of three years. CADETAF will provide support staff, transportation, small equipment and housing. CADETAF will present by March 31, 1983, terms of reference including a specific time schedule, for comments by the Bank, and consultants are scheduled to be hired by December 31, 1983. 5.27 The geochemical survey, which is the best method available to locate blind orebodies of lead and zinc, will consist of the taking and testing of about 2,200 samDles on 92 pre-selected alignments. The samples will be sent to ENIM or BRPM in Rabat for analyses by X-ray fluorescence. Follow-up underground exploration is not foreseen during the project period. If a noteworthy anomaly were to be found, meriting immediate investigation, this could be done with the light diamond core drill included under the Project (Annex 5). Survey personnel includes 2 geochemists and 1 surveyor, assisted by 2 samplers (CADETAF). For the geochemical work CADETAF will employ consultants whose selection, qualifications and terms and conditions of employment will be acceptable to the Bank. Terms of reference prepared by CADETAF are scheduled to be submitted to the Bank by June 30, 1983, and the consultants will be hired by December 31, 1983. 5.28 Exploration work will be undertaken to improve the knowledge of the lead and zinc reserves contained within individual deposits already being mined. This work will involve surface geological mapping of individual outcrops or groups of outcrops to scales between 1:250 and 1:500, accompanied by systematic trenching, sampling and testing. Underground, the selected mines will be topographically surveyed and mineralogically mapped to the same scale as for the surface. Exploration along the outcrop length beyond the present mining or below known levels will be done by drilling. A CADETAF team, consisting of 1 geologist, 2 surveyors and 2 assistant surveyors will carry out the program over a period of 2 years. 5.29 In the course of this program, CADETAF will acquire sufficient knowledge to be able to predict the probable behavior of the ore ahead of the faces with a reasonable degree of certainty. It can then agree with the miners on annual production quotas from each face, which can be followed up through the monthly deliveries made to the collection centers. This will provide CADETAF with a tool to exert influence on artisanal production rates. 7. Ore Collection Centers 5.30 CADETAF will construct four new ore collection centers at Iminohanou, Tiza, Timgharine and Ait Hani (Map), i.e. in locations too distant to be easily serviced at present from elsewhere. The centers will be equipped with a warehouse for equipment and supplies, an ore receiving and sampling yard, an office, a first-aid post, including anti-tetanus and anti-snake serum, housing  - 30 - for the manager, two-way radio, a 2-ton platform weigh scale and a four-wheel drive vehicle (for every two centers). A detailed equipment list is given in Annex 5. In four areas, which support a large or developing artisanal popula- tion and thus merit special attention, CADETAF will construct sub-centers. They will be erected at Tamslamt, Skendis, Ksar Moghal and Hawanit and will be smaller than the collection centers, but will have the same equipmenit (Annex 5). The centers and sub-centers will be constructed by CADETAF personnel at the rate of 2 per year. Having constructed the other collection centers in the past, CADETAF is well qualified to do the work. 8. Equipment for CADETAF's Technical Services 5.31 Laboratory Equipment. CADETAF's existing two laboratories at Errachidia and Erfoud have a combined capacity of 10,000 assays per year, which is insufficient to process the some 20,000 assays per year that will result from the Project. This figure excludes assaying for geochemistry and metallogenics, which will be carried out under contract. To make up the shortfall (10,000 assays per year), the collection centers at Tizi N-Firest and Tadjit which already have facilities, but no equipment, will each be equipped to handle 5,000 assays per year. A detailed equipment list is given in Annex 5. 5.32 Workshop Equipment. The mining equipment foreseen under the Project, while of similar type to that presently in use, will more than double the quantity to be maintained by CADETAF. It will also be spread more widely geographically. The Project therefore provides for (i) equipment for each of the three workshops in Errachidia, Beni Tadjit and Erfoud, and (ii) two mobile maintenance vans, including equipment. Each maintenance van will have a crew of 2 mechanics, 2 electricians and 1 driver. A detailed equipment list is given in Annex 5. 5.33 Surveying Equipment. CADETAF-s surveying and drawing section will be reinforced by 3 additional staff (para. 5.38) for whom 3 theodolites and 3 levels will be provided (Annex 5). 9. Socio-Economic Study of Artisanal Mining Sector 5.34 To improve the data base for planning future assistance to artisanal miners, the Project includes 6 man-months for a socio-economic study which will include a survey of the main characteristics of the mines and miners and provide an assessment of the impact of artisanal mining on the regional and national economy. In addition, the study will assess CADETAF's impact on the artisanal mining operations and make recommendations for future activi- ties. To carry out the study, CADETAF will hire a qualified local consultants CADETAF will prepare terms of reference to be submitted to the Bank for comments by June 30, 1983, with contract signature scheduled for December 31, 1983.  - 31 - 10. Technical Assistance for CADETAF 5.35 The Project includes 36 man-months of consulting services for CADETAF to design (12 man-months) and implement (24-man7months)> (a) systems and procedures for management information, financial accounting, cost accounting, budgeting, credit to pilot mines (para. 6.10) and long-term financial planning; and (b) analysis of CADETAF's financial organizational set-up, staffing and identification of possible training needs. The proposed services will help CADETAF to (i) determine possible additional staffing and training needs in the financial area; as well as (ii) adjust its accounting and planning procedures in light of the widened scope and complexity of the activities under the Project. The program will be carried out over a period of 18 months, with recommendations to be presented after 9 months, followed by 9 months of systems implementation. Before implementation, the consultants recommendations will be reviewed by CADETAF, in consultation with the Bank, in particular with regard to staffing levels and training needs in the financial area. To carry out the program, CADETAF will employ consultants, whose selection, qualifications and terms and conditions of employment will be acceptable to the Bank, and who will be hired by September 30, 1982. The review mentioned above is scheduled for mid-1983. 11. Ecology 5.36 The single source of pollution under the Project is the effluents from the flotation section of the lead concentrator, which contain chemical reagents used in the process. The effluents will be held in watertight tailings ponds until evaporated to prevent their entering the aquifer. 12. Mine Safety and Medical Care 5.37 CADETAF's technicians conduct periodic mine inspections and advise on mine safety. Hard hats are required for the miners safety in the shafts and tunnels, albeit not unfailingly worn. CADETAF also distributes masks to be worn as protection against dust, particularly from blasting. As mentioned in para. 5.21, a mine doctor will be consulted regarding the health effects of drilling dust from lead and zinc sulfides and the necessity of strictly enforcing mask wearing. Although mine safety is haphazard by industrial standards, few accidents seem to occur. Six accidents were reported in 1978, 25 in 1979, of which 1 was fatal, and 4 during the first half of 1980. The comparatively low accident rate is probably due to good rock conditions. Underreporting is unlikely in view of the insurance benefits that miners may expect (para. 3.14).  32 - D. Project Implementation 1. Project :anagement and Trgnnfziation 5.38 Project managemeat will be unde1sc-tatzen by CADETAF with technical assistance from BRPM v(para. 2.03) on the senior level, CADETAF has reinforced its staff with a technical director, seconded from BRPM, who will remain throughout the project implementation perriod and traiR one CADETAF staff (the presert head of the geological section) to take over his position after project completion. CADETAF has also hilred a mechanical engineer to head the maintenance section. In the financial areaa, the present chief accountant will act as financial director, assisted b; the cons ultants mentioned in para. 5,35. in addition, CADETAF will hire and marn-tain in position at least until the completion of the Project3 (i) not j; er than December 31, 1982: one geologis), two geologist technicians, G foreman instructor for the training mine, tw-o geologist technincians. tt.vo surveyor technicians, an assayer and an assayer technician, two credit agents, anad a chief statistician, and (ii) not later than June 30, 1983- a beneficiatio., engineer and two beneficiation technicians. Should the finarcial consultants' recommendations on staffing levels and their review (para. 5.35) so indicate, CADETAF will also hire additional staff for its financial department. 5.39 11PM will provide assistance mnainly in metallurgical testing and flow-sheet design, engineering, procuremen..t, installation9 training of personnel, and start-up for t!he concentrators and the crushing unit. BRPM will also assist CADETAF in procurement of eq-uipment for the other components of the Pro ject, and training for the inn, ructor of the training mine will be undertaken in B2WTM's existing mines. respective cotLtract with BRPM, on terms and conditions satisfactory te Ba nk, is a condition of effective- ness. 5.40 Under the Project, CADETImF wi_l e,rotract for about 126 consultancy man-months to carry out 'i) the metallogenic survey (para. 5.26)--36 man- months; (ii) the geochemmical survey (para. 5.27)--42 man-months; (iii) the socio-economic study of the ar--nsanal midning sector (para. 5.34)--12 man- months; and (iv) technical assistance to CADETAF (para. 5.35)--36 man-months. Approximately 50% of these are expected to be contracted from expatriate consultants. 5.41 To handle credit in kind in the fiorm of mining equipment and works 1/ to be suDplied to artisanal mInes (para. 6O1), CADETAF will establish a credit urnit staffed W3